At the height of the 1990s boom, with globalization in full swing, stocks rising, and the economy expanding, the economic model of free trade and deregulation appeared unassailable. But the retreat from government economic regulation, a policy embraced by both the Republican Congress and President Clinton, left no one to represent the public interest.

The sectors of the economy most affected by the scandals—energy, telecommunications, and stock trading—had ah been subjects of deregulation.

Enron could manipulate energy prices because Congress had granted it an exemption from laws regulating the price of natural gas and electricity. WorldCom, a communications giant that, like Enron, issued fraudulent earnings statements, had benefited from the Telecommunications Act of 1996, mentioned earlier, that privatized the airwaves.

Many stock frauds stemmed from the repeal in 1999 of the Glass-Steagall Act, a New Deal measure that had separated commercial banks, which accept deposits and make loans, from investment banks, which invest in stocks and real estate and take larger risks. The repeal made possible the emergence of “superbanks” that combined these two functions. Phil Gramm, the Texas congressman who wrote the repeal bill, which Clinton signed, explained his thinking in this way: “Glass-Steagall came at a time when the thinking was that government was the answer. In this era of economic prosperity, we have decided that freedom is the answer.”

But banks took their new freedom as an invitation to engage in all sorts of misdeeds, knowing that they had become so big that if anything happened, the federal government would have no choice but to rescue them. Conflicts of interest proliferated. Banks financed risky new stock offerings by fledgling Internet companies while their investment arms peddled the shares to an unsuspecting public. Worse, these banks poured money into risky mortgages. When the housing bubble collapsed in 2007-2008, the banks suffered losses that threatened to bring down the entire financial system. The Bush and Obama administrations felt they had no choice but to expend hundreds of billions of dollars of taxpayer money to save the banks from their own misconduct.

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